Finance Ministry stresses on reforms for higher FDI inflows

Finance Ministry stresses on reforms for higher FDI inflows

Subject : Economy

Section: External Sector

Key Points:

• Finance Ministry has pointed to the importance of reforms in key areas to push-up the FDI inflows. FDI flows, have dropped since last year and may remain subdued in the near term.
  • Gross FDI flows moderated 16% last year from the record high of $84.8 billion in 2021-22
  • Net FDI inflows to emerging market economies declined 36% in 2022.
• The major observations were as follows:
  • India needs to resolve challenges faced by global investors, including last-mile infrastructure issues, labour availability and the inability to set up larger factories.
  • FDI flows may also be impacted by “political distance more than geographical distance” as “geopolitics has dominated geography”. This is seen in the “Friend shoring” of FDI as more FDI movement restricted between geopolitically aligned countries, this is leading to a fragmentation in FDI flows across the globe
  • India faces external sector challenges such as escalation of geopolitical stress, enhanced volatility in global financial systems, sharp price correction in global stock markets, a high magnitude of El-Nino impact, and modest trade activity and FDI inflows owing to frail global demand could constrain growth.
  • Remarkably the flows from foreign portfolio investors (FPIs) into the Indian markets have become less volatile.
  • European Union’s introduction of the Carbon Border Adjustment Mechanism (CBAM), for which carbon content reporting will be mandatory from October 1, 2023, as an impending downside risk to India’s exports.